Analyst: Before we get to the forward view I want to stay on mechanics. You said the three-layer model was the part that never actually worked. Why not?
Expert: Because the compliance work doesn't sit in any of the three layers. The pitch — and I gave this pitch, I'm not pretending I was above it — is three parties, three margins. Software company embeds an account and a card, takes a slice of interchange. We sit in the middle, take a slice. Sponsor bank takes a slice for holding the deposits and owning the regulatory relationship. Lovely. Except none of those three slices pays for the person who reads nine, ten thousand alerts a month and decides which ones are real. That sat on us for four years and was never in the price.
Analyst: You didn't know the cost, or you knew and didn't charge for it?
Expert: Both, in that order. In 2021 we modelled fully loaded compliance and ops at eighty-something cents per active account per month. Eighty-four, I think, though don't quote me on the cents. By the back half of 2024 the blended actual was three-oh-nine, and if you stripped out the two institutional programs and looked only at the consumer apps it was seven and change. Seven dollars forty a month, on accounts throwing off maybe two-fifty of net revenue. That's the slide we took to the board in March. Ended the argument in nine minutes.
Analyst: Seven-forty. Is that people, or tooling?
Expert: People. Overwhelmingly. Tooling's cheap and mostly bad. At peak, financial-crime ops was a hundred and seventy-three heads across two sites — no, hold on. A hundred and seventy-three is with QA and model validation in it. So call it ninety-five doing pure alert review. Alert-to-case ran under three percent. Two point eight, two point nine. Ninety-seven times in a hundred a human looks and says nope. You can't automate that. The examiner wants a human decision on file with a name attached.
Analyst: Did the tooling get better over that period?
Expert: No.
Analyst: On revenue then. What's the split, in basis points?
Expert: Depends on the program. On exempt debit — our sponsors were all under the asset threshold so we got the uncapped rate — call it a hundred and eight to a hundred and twenty-two basis points. Sponsor took seventeen to twenty-six of that. We took twenty-two to thirty-eight depending on tier and how much of the compliance stack they rented from us. Partner keeps the rest. Don't hold me to the decimal, the tiers moved twice.
Analyst: That's healthier than I'd have guessed.
Expert: Sure. It's also not where the money was, and this is what I argue about with nearly everyone in your seat. What this category booked as embedded-finance margin from early 2023 through the middle of last year was mostly a deposits trade with software accounting. When I say mostly, I can show you the split.